Incoming UK Government must work with NI Executive to fix capital funding deficit

01 July 2024   Industry Standards 

The latest CEF Construction Survey reflects a strong view within the Northern Ireland construction industry that the incoming UK Government must form an early collaborative partnership with the NI Executive to deal with our infrastructure deficit and put the public finances on a much sounder, longer-term footing.

The survey, which collected data from NI-headquartered firms which have a collective annual turnover of approximately £2.5bn, covers 2023/24 and reflects on many of the key challenges that contractors, civil engineers and homebuilders are facing currently.

The main findings included:

• 65% of respondents said their turnover had increased by at least 10% in 2023/24
• 55% said that their profit margins were slightly better in 2023/24 than 2022/23; while 18% said profit margins were worse year-on-year
• Over the last year, some 80% of firms were operating at full or almost full capacity
• On the industry’s skills challenge, the 3 main issues that were identified were:
• Specific skills shortages in construction trades
• Visibility of pipeline and market confidence to recruit new workers
• The perception of construction as an attractive career path
• Materials shortages are almost completely resolved: 96% said any issues were now manageable
• Inflationary issues have abated but by no means for all: 75% of respondents saying they now had a moderate impact but were manageable; 25% said they were continuing to have a serious impact causing financial concern
• The 3 main priorities for an incoming UK Government are:
• Urgently enhancing the NI Executive’s capital budget this year to deal with shortfalls for clients such as the housing associations and NI Water
• Speedily deliver a Comprehensive Spending Review to allow the NI Executive to set a multi-year budget for 2025/26 onwards
• Encourage the NI Executive to use powers it already has to raise revenue so to grow its own budget
• On the future of the Apprenticeship Levy survey respondents were evenly split between 2 options:
• Maintain the Levy as is but ensure that the money raised from NI companies is spent on apprenticeships/training in NI and;
• Devolve the power to raise the Levy to the NI Assembly and enable the NI Executive to craft its own approach to using the funds for apprenticeships/training
• When looking to the GB and RoI markets, 3 main reasons were given as to why they are more attractive for contractors:
• Increased profit margins
• Company growth in new markets
• More secure pipeline
• Looking to the next 6 months, the key challenges identified are:
• Insufficient public sector budgets
• Limited public sector procurement pipeline
• Access to skilled labour
• Political uncertainty as a result of elections across the UK and Ireland

Mark Spence, Chief Executive of the Construction Employers Federation, said of the results:

“While a number of the key challenges of recent years such as unprecedented inflation and materials shortages have undoubtedly abated, the principal issue looking ahead is the lack of finance available to the Northern Ireland Executive and, consequently, an insufficient pipeline of public works.

“The return of the Executive has led to a rise in industry confidence – but that confidence is only sustainable when it is clear that their return equates to a significant uplift in the volume of work that is forecast.

“With the current year seeing the Executive’s capital budget at the same level in cash terms as 2007/08, it is the industry’s clear call that an incoming UK Government immediately undertakes to work with the Executive to grow this year’s funding envelope. This is specifically in the context of huge forecast reductions in the number of new social housing units our housing associations can take forward and the significant underfunding of NI Water’s capital budget. There must also be speedy clarity brought to future years’ funding through a UK Government-led Comprehensive Spending Review.

“Without this, we risk drastically exacerbating existing fundamental problems – most notably our housing crisis which is currently seeing some 19,000 homes that could otherwise be built being held up by constraints in our wastewater capacity.

“It is also clear from these results that the next UK Government must work with the Executive on reforms to the existing approach to the Apprenticeship Levy. Either maintaining the Levy as is, but ensuring that money raised from NI companies is spent on apprenticeships/training in NI, or devolving the Levy to the Assembly thus enabling the NI Executive to craft its own approach to using the funds for apprenticeships/training carry equal weight among our members regarding the future approach and it is something, given the sector’s skills shortage, that we would encourage focus on.”